Dubai World likely to offer 'sweeteners': UBS

Dubai World, the state-owned company seeking to renegotiate about US$22 billion of debt, is more likely to offer improved terms to creditors than risk the possibility of legal claims, UBS AG said.

“There is a higher probability of Dubai World offering sweeteners to creditors, perhaps higher interest rates or equity swap options, for a terming-out of obligations in lieu of creditors waiving legal claims to key Dubai World assets including DP World,” UBS AG analysts said in a report, yesterday. Dubai World, one of Dubai's three main state-owned business groups, said on Nov. 25 that it would seek to delay repaying debt for at least six months, roiling markets in the Middle East and around the world. The company plans to meet with creditor banks this week to complete a standstill agreement, a banker participating in the talks said on Jan. 14.

Dubai, the second-biggest of the seven United Arab Emirates, has raised US$20 billion for a fund to help state-related companies through the credit crisis, a government spokeswoman said yesterday, declining to be identified because of government policy. Support came from the Abu Dhabi government and the U.A.E. central bank.

“It is unlikely that Abu Dhabi's support has peaked just yet, and the probability of further balance sheet assistance is high,” UBS said. “We expect Abu Dhabi's involvement to surface more visibly in 2010 but expect this to take the form of shaping of the Dubai and U.A.E. economic model, as opposed to acting as a channel for cash.”

UBS estimates that Dubai and its entities must repay at least US$35 billion in bonds and loans, equivalent to 43 percent of gross domestic product, in the next two years.